23
MTAT.03.231 B i P M t (BPM) Business Process Management (BPM) (for Masters of IT) Lecture 11: Process Performance Measurement Marlon Dumas

Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Embed Size (px)

Citation preview

Page 1: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

MTAT.03.231B i P M t (BPM)Business Process Management (BPM)

(for Masters of IT)

Lecture 11: Process Performance Measurement

Marlon Dumas

Page 2: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Business Process Lifecycle ManagementBusiness Process Lifecycle Management

• Process identificationP d lli ( i )• Process modelling (as-is)

• Process analysisP i ( b )• Process improvement (to-be)

• Process implementation• Process execution• Process monitoring/controlling

22

Page 3: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Process Performance Measurement

Develop and Implement MeasurementsI l i th ti• Involves answering the questions1.What is to be measured and controlled (Ex. FedEx)?2.What is currently measured (available data)?2.What is currently measured (available data)?3.Can a business case be made for a new measurement system?4.What is an adequate sampling method, sampling size & frequency?

f• Measurements should be meaningful, accurate and timely– Statistical and graphical tools needed to turn data into information.

• Measurement categories: Measures of• Measurement categories: Measures of… – Conformance (to given specifications, e.g. reliability)– Response time (lead-time, cycle time)– Quality (error rates)– Cost (resource utilization, internal and external failure costs, cost of

rework)

3

rework)

Adapted from Laguna & Marklund

Page 4: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Performance Measures ExamplesPerformance Measures - Examples

R ti• Response time– Average cycle time– Ratio of completed transactions to total transactions within a

timeframe (e.g. 80% of transactions completed within 2 days)– ….

• Quality (e.g. error rates)Q y ( g )– Number of corrections– Number of adjustments– Number of complaints– Number of complaints– ….

• …

4

Page 5: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Performance Measures in SCMPerformance Measures in SCM

Overall Inventory Turns Annual cost of goods sold (company info) ÷ average total inventory

Raw Materials Inventory Turns (manufacturing companies only)

Annual cost of raw materials purchased (3) ÷ average raw material inventory

Work-in-Process Inventory Turns (manufacturing companies only)

(Annual cost of raw materials purchased (3) + Annual cost of conversion (4)) ÷ average work in process inventory

Finished Goods Inventory Turns Annual cost of goods sold (company info) ÷ average finished goods y g ( p y ) g ginventory

Percentage of safety stock Average safety stock ÷ total inventory

Purchase order cycle time (in days for h i d t t d l d

Average amount of time (in days) elapsed from point of intention to l d t i t f d b dpurchasing department and excludes

supplier lead time)place order to receipt of order by vendor

Supplier lead time Average amount of time (in days) elapsed from point of order to delivery

Supplier on-time delivery Percentage of orders supplier delivers on scheduled due date

5Find more at: http://www.exinfm.com/workshop.html

Page 6: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

What to Measure? The Balance Scorecard FrameworkThe Balance Scorecard Framework

6After Kaplan & Norton (1992)

Page 7: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Strategy Map: Capture a Cause Effect Relationship from the Bottom Up

olde

rRelationship from the Bottom Up

sSt

akeh

o

Improved Returns on Investments

More rapid and accessible services

erna

l Pro

cess

Reduce Re-Activities thru ABC

Establish Web-Based Self Services

Economic Model Process

Inte

ing

wth Knowledge LeadershipExpand Global

Lear

n&

Gro

w gManagement

Leadership Development

)

Expand Global Facility Reach

Human Capital

Fina

ncia

l

nves

tmen

ts)

IT InfrastructureFacilities and Fixed Assets

7

(I

http://www.exinfm.com/

Page 8: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Examples of Measurements by PerspectiveExamples of Measurements by Perspective

Stakeholder / CustomerStakeholder / Customer Internal ProcessesInternal Processes• Number of unscheduled maintenance calls• Current customer satisfaction level• Production time lost because of maintenance

problems• Percentage of equipment maintained on

schedule

• Improvement in customer satisfaction• Customer retention rate• Frequency of customer contact by

customer service schedule• Average number of monthly unscheduled

outages• Mean time between failures

customer service• Average time to resolve a customer

inquiry• Number of customer complaints

Learning and GrowthLearning and Growth Financial / InvestmentsFinancial / Investments• % of facility assets fully funded for• Percentage employee absenteeism • % of facility assets fully funded for

upgrading• % of IT infrastructure investments

approved

• Percentage employee absenteeism• Hours of absenteeism• Job posting response rate• Personnel turnover rate

• # of new hire positions authorized for filling

• % of required contracts awarded and in place

• Ratio of acceptances to offers• Time to fill vacancy

8http://www.exinfm.com/

Page 9: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Extend the Map into Measurements, Extend the Map into Measurements, Targets and InitiativesTargets and Initiatives

Strategy Mapder

Targets and InitiativesTargets and Initiatives

Detailed statement of

what is critical to successfully

hi i th

How success in achieving the

strategy will be measured and

t k d

Key action programs

required to achieve bj ti

The level of performance

or rate of improvement

d d

Stak

ehol

Faster Service Access

achieving the strategy

tracked objectivesneeded

Objective Target InitiativeMeasureProc

ess

Self ServiceApplications

Description Target

2 per setup per month each Outlet Office

InitiativeMeasure

Number of ReworksIn

tern

al

Process and ValueM A l i

Lean ProcessesLean / Six Sigma

Eliminate waste, reworks, and other errors in our processes

L&G Web Enable

Technologies

Map Analysis our processes

ec o og es

estm

ents

Invest in IT

9

Inve

http://www.exinfm.com/

Page 10: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Alignment of Scorecard ComponentsAlignment of Scorecard Components

Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy

Alignment of Scorecard ComponentsAlignment of Scorecard Components

create a tight model for driving execution of your strategy.

Goal Objective Measurement Target Initiativej g

Achieve Agency operational

Reduce Operational Service Costs by

Cost per Outlet Office, Cost per Region, Cost

5% - Year 110% - Year 215% Y 3

Activity Based Costing /operational

efficiencies with best practices in th i t

Service Costs by 50% over the next 5 years

Region, Cost per FTE

15% - Year 3 Costing / Management

the private sector

Reduce identified re-activities within primary processes by

Waste Volume Charts, Rework Tracking, Cycle Time End to End

Waste stream reductions of 5% each year, Reworks cut in

Lean / Six Sigma

processes by 80% over the next 3 years

Time End to End in S-LX (5 of 7 Regions)

Reworks cut in half for next 3 years, cycle time cut by 75%

10http://www.exinfm.com/

Page 11: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Guidelines for Performance MeasuresGuidelines for Performance Measures

• At least one measurement per objective. • Measurements define or explain objectives in

ifi blquantifiable terms:Vague => We will improve customer serviceP i > W ill i t i bPrecise => We will improve customer service by

reducing response times by 30% by year end. y

• Measurements should drive change and encourage the right behavior.

• Should be able to influence the outcome.

11http://www.exinfm.com/

Page 12: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

ExerciseExercise

• Consider a procure-to-pay business process. Which performance measures could we define on this process?

12

Page 13: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Benchmarking: SCORcardsg

13T. Gulledge & T. Chavusholu: “Automating the construction of supply chain key performance indicators”, Industrial Management & Data Systems, 2008.

Page 14: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Six Sigma Quality Programs• Six Sigma is originally a company wide initiative at Motorola

for breakthrough improvement in quality and productivityfor breakthrough improvement in quality and productivity– Launched in 1987

• The ongoing success of Six Sigma programs has attractedThe ongoing success of Six Sigma programs has attracted a number of prestigious firms to adopt the approach – Ex. Ford, GE, AMEX, Honeywell, Nokia, Phillips, Samsung, J.P.

Morgan, Maytag, Dupont…

Broad definition of Six Sigma programs“A company wide strategic initiative for process improvement in both manufacturing and service organizations with the clear objective of reducing costs and increasing revenues”j g g

– Fierce focus on bottom-line results

14Laguna & Marklund

Page 15: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Technical Definition of Six Sigma• Reduce the variation of every individual process to render no more

than 3.4 defects per million opportunitiesp pp• Assuming the process output is normally distributed with mean μ and

standard deviation σ the distance between the target value and the closest specification limit is at least 6 σ and the process mean is p pallowed to drift at most 1.5 σ from the target

σμ 1.5- σ+μ 1.5μ

Target Value (T)

4.5σ σ4.5σ1.5 σ1.5

Upper Specification Limit (USL)

Lower Specification Limit (LSL)

6 6

156σ 6σ

Laguna & Marklund

Page 16: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Cost or Efficiency RationaleRationale

• Reducing costs by increasing process efficiency has an immediate effect on the bottom lineimmediate effect on the bottom line – To assure worker involvement Six Sigma strives to avoid layoffs

Improvement projects

VariationThe Six Sigma Efficiency loop

Improvement projects

Commitment Reduced Costs

Increased ProfitsCycle Time Yield

16

Increased Profits

Laguna & Marklund

Page 17: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Cost or Efficiency Rationale

• Based on the dimensions of variation, cycle time & yieldRationale

Variation• Can be divided into two main types

1. Common cause or random variation2. Special cause or non-random variation

• Non random variation• Non-random variation – Relatively few identifiable root causes– First step in reducing the overall variation is to eliminate non-

random variation by removing its root causes• Random variation

The result of many different causes– The result of many different causes– Inherent in the process and can only be affected by changing

the process design

17Laguna & Marklund

Page 18: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Cost or Efficiency Rationale

Variation (cont.)Rationale

• Important concepts to understand the impact of variation– Dispersion

P di t bilit– Predictability– Centering

• Dispersion• Dispersion – Magnitude of variation in the measured process characteristics.

• PredictabilityPredictability– Do the measured process characteristics belong to the same

probability distribution over time?– For a predictable process, dispersion refers to the width of the pdf.

• CenteringH ll th i li d ith th t t l

18– How well the process mean is aligned with the process target value

Laguna & Marklund

Page 19: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Cost or Efficiency Rationale

Variation (cont.)

Rationale( )

• Ideally the process should be predictable, with low dispersion, and well centeredS d d h f d i i bili i Si Si• Standard approach for reducing variability in Six Sigma programs

1 Eliminate special cause variation to reduce overall1. Eliminate special cause variation to reduce overall dispersion and improve predictability

2. Reduce dispersion of the predictable process3 Center the process to the specified target3. Center the process to the specified target

• Six Sigma use traditional tools for quality and process control/analysisy

– Basic statistical tools for data analysis– The 7 QC tools

19Laguna & Marklund

Page 20: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Cost or Efficiency Rationale

Cycle time and Yield

Rationale

• Cycle time (lead-time, response time)– The time a job spends in the process

Yi ld ( d i i )• Yield (productivity)– Amount of output per unit of input or per unit time

I t i l ti d i ld f ll th• Improvement in cycle time and yield follow the same tactic as for variation

– Gain predictability reduce dispersion and center to targetGain predictability, reduce dispersion and center to target

• The target is usually broadly defined as– Minimize cycle time and Maximize yielde cyc e t e a d a e y e d

• Six Sigma principle– Improvement in average cycle time and yield should not be

20made at the expense of increased variation

Laguna & Marklund

Page 21: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

The Six Sigma Framework

Centered around a disciplined and quantitatively i t d i t th d l (DMAIC)oriented improvement methodology (DMAIC)

– Define, Measure, Analyze, Improve, Control

Top Management Commitment

Training

Define Measure Analyze Improve C t l

Training

Improvement MethodologyDefine Measure Analyze Improve Control

Measurement SystemMeasurement System

Stakeholder Involvement

21Laguna & Marklund

Page 22: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Six Sigma Success Factors• The bottom line focus and big dollar impact

E d i t i t t it t– Encourages and maintains top management commitment

• The emphasis on - and consistent use of - a unified and quantitative approach to process improvementquantitative approach to process improvement– The DMAIC methodology provides a common language to share

experiences and successes across the organization– Creates awareness that decisions should be based on factual data

• Emphasis on understanding & satisfying customer needs– Creates focus on doing the right things right– Anecdotal information is replaced by factual data

Combination of right projects right people and right tools• Combination of right projects, right people and right tools– Careful selection of projects and people combined with hands on

training in using statistical tools in real projects

22

g g p j

Laguna & Marklund

Page 23: Marlon Dumas - Kursused - Arvutiteaduse instituut · Marlon Dumas. Business Process ... Performance Measures in SCMPerformance Measures in SCM ... Lean / Six Sigma Eliminate waste,

Recap: The Layers of BPM Activitiesy

BPM SetupStrategic

AlignmentBPM

GovernanceBPM

MethodologyProcess-awareInfom. Systems

Culture &People

Process AnalysisProcess

IdentificationProcess

ModellingProcess

MeasurementProcessAnalysis

ProcessImprovement

Process ImplementationProcess Process Process Process ChangeLean/

Process Execution and Controlling

ProcessConfiguration

ProcessDevelopment

ProcessTraining

ProcessTesting

ChangeManagementSix

Sigma

ProcessExecution

Process Monitoring

Process Mining

ProcessPerform. Mgt.

ProcessControlling

Process Execution and Controlling

23